Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. L-1721

May 19, 1950

JUAN D. EVANGELISTA ET AL., plaintiffs-appellants,

vs.
RAFAEL SANTOS, defendant-appellee.
Antonio Gonzales for appellants.
Benjamin H. Tirol for appellee.
REYES, J.:
This is an action by the minority stockholders of a corporation against its principal officer
for damages resulting from his mismanagement of its affairs and misuse of its assets.
The complaint alleges that plaintiffs are minority stockholders of the Vitali Lumber
Company, Inc., a Philippine corporation organized for the exploitation of a lumber
concession in Zamboanga, Philippines; that defendant holds more than 50 per cent of
the stocks of said corporation and also is and always has been the president, manager,
and treasurer thereof; and that defendant, in such triple capacity, through fault, neglect,
and abandonment allowed its lumber concession to lapse and its properties and assets,
among them machineries, buildings, warehouses, trucks, etc., to disappear, thus
causing the complete ruin of the corporation and total depreciation of its stocks. The
complaint therefore prays for judgment requiring defendant: (1) to render an account of
his administration of the corporate affairs and assets: (2) to pay plaintiffs the value of t
heir respective participation in said assets on the basis of the value of the stocks held
by each of them; and (3) to pay the costs of suit. Plaintiffs also ask for such other
remedy as may be and equitable.
The complaint does not give plaintiffs' residence, but, but purposes of venue, alleges
that defendant resides at 2112 Dewey Boulevard, corner Libertad Street, Pasay,
province of Rizal. Having been served with summons at that place, defendant filed a
motion for the dismissal of the complaint on the ground of improper venue and also on
the ground that the complaint did not state a cause of action in favor of plaintiffs.
In support of the objection to the venue, the motion, which is under oath, states that
defendant is a resident of Iloilo City and not of Pasay, and at the hearing of the motion

defendant also presented further affidavit to the effect that while he has a house in
Pasay, where members of his family who are studying in Manila live and where he
himself is sojourning for the purpose of attending to his interests in Manila, yet he has
permanent residence in the City of Iloilo where he is registered as a voter for election
purposes and has been paying his residence certificate. Plaintiffs opposed the motion
for dismissal but presented no counter proof and merely called attention to the Sheriff's
return showing service of summons on defendant personally at his alleged residence at
No. 2112 Dewey Boulevard, Pasay.
After hearing, the lower court rendered its order, granting the motion for dismissal upon
the two grounds alleged by defendant, and reconsideration of this order having been
denied, plaintiffs have appealed to this Court.
The appeal presents two questions. The first refers to venue and the second, to the
right of the plaintiffs to bring this action for their benefit.
As to the first question, it is important to remember that the laying of the venue of an
action is not left to plaintiff's caprice. The matter is regulated by the Rules of Court. And
in actions like the present, which is one in personam, the regulation applicable is that
contained in section 1 of Rule 5, which provides:
Civil actions in Courts of First Instance may be commenced and tried where the
defendant or any of the defendant resides or may be found, or where the plaintiff
or any of the plaintiffs resides, at the election of the plaintiff.
Objection to improper venue may be interposed at any time prior to the trial. (Moran's
Comments on the Rules of Court, Vol. I, 2nd ed., p. 108.)
Believing that defendant resided in the province of Rizal, herein plaintiffs brought their
action in the Court of First Instance of that province. But that belief proved erroneous,
for the lower court found after hearing that defendant had his residence in Iloilo. The
finding is based on defendant's sworn statement not rebutted by any proof to the
contrary.
There is nothing to the contention that defendant's motion to dismiss necessarily
presupposes a hypothetical admission of the allegations of the complaint, among them
the averment that defendant is a resident of Rizal province, for the motion precisely
denies that averment and alleges that his real residence is in Iloilo City. This, defendant
had the right to do in objecting to the court's jurisdiction on the ground of improper
venue.

Section 1 of Rule 5 may seem, at first blush, to authorize the laying of the venue in the
province where the defendant "may be found." But this phrase has already been held to
have a limited application. It is the same phrase used in section 377 of Act 190 from
which section 1 of Rule 5 was taken, and as construed by this Court it applies only to
cases where defendant has no residence in the Philippine Islands. This was the
construction adopted in the case of Cohen vs. Benguet Commercial Co., Ltd., 34 Phil.
526, which was an action brought in Manila by a nonresident against a corporation
which had its residence for legal purposes in Baguio but whose President was found in
Manila and there served with summons. This Court there said:
Section 377 provides that actions of this character "may be brought in any
province where the defendants or any necessary party defendant may reside or
be found, or in any province where the plaintiff or one of the plaintiffs resides, at
the election of the plaintiff." The plaintiff in this action has no residence in the
Philippine Islands. Only one of the parties to the action resides here. There can
be, therefore, no election by plaintiff as to the trial. It must be in the province
where the defendant resides. The defendant resides, in the eye of the law, in
Baguio. Was it "found" in the city of Manila under section 377, its president being
in that city where the service of summons was made? We think not. The word
"found" as used section 377 has a different meaning that belongs to it as used in
section 394, which refers exclusively to the place where the summons may be
served. As we have said a summons may be legally served on a defendant
wherever he may be "found," i. e., wherever he may be, provided he be in the
Philippine Islands; but the venue cannot be laid wherever the defendant may be
"found." There is an element entering in section 377 which is not present in
section 394, that is a residence. Residence of the plaintiff or defendant does not
affect the place where a summons may be served; but residence is the vital thing
when we deal with venue. The venue must be laid in the province where one of
the parties resides. If the plaintiff is a nonresident the venue must laid in the
province of the defendant's residence. The venue can be laid in the province
where defendant is "found" only when defendant has no residence in the
Philippine Islands. A defendant can not have a residence in one province and be
"found" in another. As long as he has a residence in the Philippine Islands he can
be "found," for the purposes of section 377, only in the province of his residence.
In such case the words "residence" and "found" are synonymous. If he is a
nonresident then the venue may laid in the province where he is "found" at the
time venue the action is commenced or in the province of plaintiff's residence.
This applies also to a domestic corporation.
While the service of the summons was good in either Baguio or Manila we are of
the opinion that the objection of the defendant to the place of trial was proper in

both cases and that the trial court should have held that the venue was
improperly laid.
And elaborating on the point when the case came up for reconsideration, the Court
further said:
The moving party contends that the venue was properly laid under section 377 in
that was laid in the province where the defendant was found at the time
summons was served on its president, he having been found and served with
process in the city of Manila. for the purpose of the discussion we assumed in the
main case, as the plaintiff claimed, that the defendant was in fact and in law
found in the city of Manila; and proceeded to decide the cause upon the theory
that, even if the defendant were found in the city of Manila, that did not justify,
under the facts of the case, the laying of the venue in the city of Manila.
We do not believe that the moving party's objection that our construction deprives
the word "found" of all significance and results, in effect, in eliminating it from the
statue, is sound. We do not deprive it of all significance and effect and do not
eliminate it from the statue. We give it the only effect which can be given it and
still accord with the other provisions of the section which give defendant the right
to have the venue laid in the province of his residence, the effect which it was
intended by the legislature they should have. We held that the word "found" was
applicable in certain cases, and in such cases gave it full significance and effect.
We declared that it was applicable and effective in cases where the defendant is
a nonresident. In such cases where the defendant is a nonresident. In such
cases the venue may be laid wherever he may be found in the Philippine Islands
at the time of the service of the process, but we also held that where he is a
resident of the Philippine Islands the word "found" has no application and the
venue must be laid in the province where he resides.
The construction which the moving party asks us to place on that provision of
section 377 above quoted would result in the destruction of the privilege
conferred by the section upon a resident defendant which requires the venue to
be laid in the province where he resides. This is clear; for, if the venue may be
laid in any province where the defendant, although a resident of some other
province, any be found at the time process is served on him, then the provision
that it shall be laid in the province where he resides is no value to him. If a
defendant residing in the province of Rizal is helpless when the venue is laid in
the province of Mindoro in an action in which the plaintiff is a nonresident or
resides in Manila, what is the value of a residence in Rizal? If a defendant
residing in Jolo is without remedy when a nonresident plaintiff or a plaintiff

residing in Jolo lays the venue in Bontoc because the defendant happens to be
found there, of what significance is a residence in Jolo? The phrases "where the
defendant ... may reside" and "or be found" must be construed together and in
such manner that both may be given effect. The construction asked for by the
moving party would deprive the phrase "where the defendant ... may reside" of all
significance, as the plaintiff could always elect to lay the venue in the province
where the defendant was "found" and not where he resided; whereas the
construction which we place upon these phrases permits both to have effect. We
declare that, when the defendant is a resident of the Philippine Islands, the
venue must be laid either in the province where the plaintiff resides or in the
province where the defendant resides, and in no other province. Where,
however, the defendant is a nonresident the venue may be laid wherever
defendant may be found in the Philippine Islands. This construction gives both
phrases their proper and legitimate effect without doing violence to the spirit
which informs all laws relating to venue and which insists always that the action
shall tried in the place where the greater convenience of the parties will be
served. Ordinarily a defendant's witness are found where the defendant resides;
and plaintiff's witnesses are generally found where he resides or where the
defendant resides. It is, therefore, generally desirable to have the action tried
where on of the resides. Where the plaintiff is a nonresident and the contract
upon which suit is brought was made in the Philippine Islands it may safely be
asserted that the convenience of the defendant would be best served by a trial in
the province where he resides.
The fact that defendant was sojourning in Pasay t the time he was served with
summons does not make him a resident of that place for purposes of venue. Residence
is "the permanent home, the place to which, whenever absent for business or pleasure,
one intends to return, ..." (67 C.J., pp. 123-124.) A man can have but one domicile at a
time (Alcantara vs. Secretary of Interior, 61 Phil., 459), and residence is anonymous
with domicile under section 1 of Rule 5 (Moran's Comments, supra, p. 104).
In view of the foregoing, we hold that the objection to the venue was correctly sustained
by the lower court.
As to the second question, the complaint shows that the action is for damages resulting
from mismanagement of the affairs and assets of the corporation by its principal officer,
it being alleged that defendant's maladministration has brought about the ruin of the
corporation and the consequent loss of value of its stocks. The injury complained of is
thus primarily to the corporation, so that the suit for the damages claimed should be by
the corporation rather than by the stockholders (3 Fletcher, Cyclopedia of Corporation
pp. 977-980). The stockholders may not directly claim those damages for themselves

for that would result in the appropriation by, and the distribution among them of part of
the corporate assets before the dissolution of the corporation and the liquidation of its
debts and liabilities, something which cannot be legally done in view of section 16 of the
Corporation Law, which provides:
No shall corporation shall make or declare any stock or bond dividend or any
dividend whatsoever from the profits arising from its business, or divide or
distribute its capital stock or property other than actual profits among its
members or stockholders until after the payment of its debts and the termination
of its existence by limitation or lawful dissolution.
But while it is to the corporation that the action should pertain in cases of this nature,
however, if the officers of the corporation, who are the ones called upon to protect their
rights, refuse to sue, or where a demand upon them to file the necessary suit would be
futile because they are the very ones to be sued or because they hold the controlling
interest in the corporation, then in that case any one of the stockholders is allowed to
bring suit (3 Fletcher's Cyclopedia of Corporations, pp. 977-980). But in that case it is
the corporation itself and not the plaintiff stockholder that is the real property in interest,
so that such damages as may be recovered shall pertain to the corporation (Pascual vs.
Del Saz Orosco, 19 Phil. 82, 85). In other words, it is a derivative suit brought by a
stockholder as the nominal party plaintiff for the benefit of the corporation, which is the
real property in interest (13 Fletcher, Cyclopedia of Corporations, p. 295).
In the present case, the plaintiff stockholders have brought the action not for the benefit
of the corporation but for their own benefit, since they ask that the defendant make good
the losses occasioned by his mismanagement and pay to them the value of their
respective participation in the corporate assets on the basis of their respective holdings.
Clearly, this cannot be done until all corporate debts, if there be any, are paid and the
existence of the corporation terminated by the limitation of its charter or by lawful
dissolution in view of the provisions of section 16 of the Corporation Law.
It results that plaintiff's complaint shows no cause of action in their favor so that the
lower court did not err in dismissing the complaint on that ground.
While plaintiffs ask for remedy to which they are not entitled unless the requirement of
section 16 of the Corporation Law be first complied with, we note that the action stated
in their complaint is susceptible of being converted into a derivative suit for the benefit of
the corporation by a mere change in the prayer. Such amendment, however, is not
possible now, since the complaint has been filed in the wrong court, so that the same
last to be dismissed.

The order appealed from is therefore affirmed, but without prejudice to the filing of the
proper action in which the venue shall be laid in the proper province. Appellant's shall
pay costs. So ordered.
Moran, C.J., Ozaeta, Pablo, Bengzon, Tuason, and Montemayor, JJ., concur.